Question

Arizona Corp. acquired the business Data Systems for $320,000 cash and assumed all liabilities at the date of purchase. Data's books showed tangible assets of $260,000, liabilities if $40,000, and stockholders' equity of $220,000. An appraiser assessed the fair market value of the tangible assets at $250,000 at the date of acquisition. Arizona Corp.'s Financial condition just prior to the acquisition is shown in the following statements model:

Assets = Liabilites + Equity | Rev. - Exp. = Net Inc. | Cash Flow

Assets: Cash (=$450,000), Tang. Assets, & Goodwill

Equity = $450,000

a). Compute the amount of goodwill acquired

b). Record the acquisition in a financial statement model like the preceding one.

Answer 1

• Requirement [a]

Amount of Goodwill acquired = $ 110,000

A	Fair Value of assets taken over		$250,000
B	Fair Value of liabilities taken over		$40,000
C = A- B	Fair Value of 'net assets' taken over		$210,000
D	Cash paid to acquire these 'net assets'		$320,000
E = D - C	Amount paid for goodwill		$110,000	Answer

• Requirement [b]

	Cash	Tangible Assets	Goodwill	Liabilities	Equity	Rev	Expense	Net Income	Cash Flow
Recording of acquisition	($320,000)	$250,000	$110,000	$40,000	$0	$0	$0	$0	($320,000)